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Have the Gold and Silver Prices Resumed the Uptrend and If So Why?

By: Julian D. W. Phillips | Wednesday, February 26, 2014

Gold is now above $1,330 and setting a pattern of short consolidations up
against overhead resistance before breaking through and moving higher. This
seems to contradict the popular opinion that gold should be sold and funds
invested in equity markets.

In 2013, the hope that the economic recovery would gain traction in the U.S.
caused a persistent trend of selling gold from U.S. based gold Exchange traded
Funds. In April 2013, after Goldman Sachs forecast a heavy fall in the gold
price, together with their clients and J.P. Morgan Chase, they unloaded around
400 tonnes of physical gold into the market in short time. The gold price buckled
as a result. It pulled back to $1,180. It recovered over $1,200 over time in
the face of many forecasts that it would fall to $1,000 an ounce. During the
rest of the year the persistent heavy selling from Gold Exchange Traded Funds
amounted to 880 tonnes by the end of the year. Institutions sold gold from
these funds to turn to what appeared to be a far better prospect of profits.
How do we know that it was financial institutions that were sellers? Because
it was at the creation of these gold ETFs that allowed financial institutions
to buy gold almost directly at cheap normal brokerage rates. Before that, they
could not own gold bullion. With the gold ETF issuing shares against purchases
of gold bullion, suddenly this market was opened to them. The tonnage sold
through the year was around 20 to 30 tonnes a week.

In total, the U.S. supplied around 1,300 tonnes over the course of 2013. With
total newly-mined gold supply at 2,969 tonnes and recycled gold supply at 1,371
tonnes, totaling 4,340, the additional 30% supply from the U.S. took supply
up to 5,640 tonnes.

But at the end of 2013, the supply from the U.S. slowed to a trickle and looks
like drying up now. While the focus of U.S. investors in the gold market has
been switching out of gold and the expectation it would fall further in price,
most overlooked the fact that these funds would have a finite amount of gold
to sell. Many investors in these funds are very long-term holders and will
not contemplate selling their gold. The profit-seekers appear to have completed
their sales now, and we're seeing U.S. investors starting to buy gold back
into these funds. The conclusion is that we're very close to if not at the
point where the gold market has lost a 1,300 tonnes line of supply -that is
huge for any market. This fact alone is changing the structure of the gold
market and taking the gold price back to the uptrend.

Please note that we haven't mentioned what's happening on the demand side
and what's expected to happen on that side in the near future. In future articles,
we will look at these reasons and why the gold market has changed to the positive
and will stay there.

"Global Watch: The Gold Forecaster" covers the global gold market.
It specializes in Central Bank Sales and details, the Indian Bullion market
[supported by a leading Indian Bullion professional], the South African markets
[+ Gold shares shares] plus the currencies of gold producers [ Euro, U.S. $,
Yen, C$, A$, and the South African Rand]. Its aim is to synthesise all the
influential gold price factors across the globe, so as to truly understand
the global reasons behind the gold price.FIND OUT MORE

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